ITC Profit Rises 21%

Source from:  WSJ 10/25/2011

Cigarettes-to-hospitality company ITC Ltd. Monday exceeded market estimates with a 21% jump in second-quarter net profit, as the company improved profits from all its businesses, especially cigarettes. Net profit for the quarter through September rose to 15.14 billion rupees ($304 million) from 12.47 billion rupees a year earlier, beating the 14.66 billion rupees average of forecasts in a Dow Jones Newswires poll of 13 analysts. Sales climbed almost 18% to 59.74 billion rupees from 50.83 billion rupees. The company gets half its sales from cigarettes and the rest from businesses as varied as hotels, packaged foods, education and stationery products, personal care products, paper and packaging, and agriculture. Net revenue from the cigarette business increased 16% to 29.68 billion rupees, and pre-tax profit climbed 19% to 17.29 billion rupees. Himani Singh, consumer goods analyst at Mumbai-based brokerage Elara Securities (India) Pvt. Ltd., said she estimates this quarter's cigarette sales volume growth at 7.5%-8%, despite ITC having to raise prices to offset state levies. ITC raised prices of its Classic brand of cigarettes by 10% earlier in the July-September quarter and followed it up with price increases in other brands such as Navy Cut. The Indian government has been making legislation stricter for the tobacco industry, banning smoking in public and slapping a higher levy on cigarettes. While the federal government left the excise tax on cigarettes untouched this fiscal year, states such as Tamil Nadu, West Bengal and Andhra Pradesh raised the rate of value-added tax on tobacco products in the second quarter. The price increases helped ITC expand its earnings margin before interest and taxes from cigarettes by 100 basis points from the year-earlier quarter and 300 basis points from the previous sequential quarter, Elara's Singh said. To reduce its reliance on cigarettes, ITC is investing in packaged food, apparel retailing, and home and personal care products. Though investment in this segment has weighed on profits, losses have been narrowing for the past several quarters. Pre-tax losses at the non-tobacco consumer goods segment narrowed to 559 million rupees from 669 million rupees, while net revenue increased 27% to 13.41 billion rupees. Net revenue from the hotels business rose a muted 1.0% to 2.11 billion rupees, primarily as the second quarter is a lean period for the hospitality business. The paperboard, packaging and printing business' top line rose 9.4% to 10.05 billion rupees, while revenue from the agricultural trading business rose 13% to 14.35 billion rupees. Enditem